Proportionate Property Improvement Valuations – “Pro-Rata Valuations”

April 4, 2016

State Laws You Should Know

Bill Ward, Executive Vice President, HBAI

HBAI has battled for years with units of local government over the expediency of tax dollars derived from the improvements to private property. Everyone knows about the expansion of impact fees beginning in the late 1980s that hit a crescendo during our peak years of performance in the 2000s. School and park “donations,” fees for libraries, fire protection districts, and police protection were all used to squeeze tax dollars out of home builders prior to the sale of their product, the new home.

But there was another battle being waged in the 1990s between the tax assessors and the builders that received little attention compared to the imposition of impact fees; the conflict over the definition of Proportionate Property Improvement Valuations, or, more commonly referred to as: “Pro-Rata Valuations.”

State law required that pro-rated valuations for improvements to property be applied from the date when the improvement was “substantially completed or initially occupied or initially used.” Assessors around Illinois took advantage of the “or” word, and began re-assessing half-built homes on the basis that they would deem them “substantially complete.” Never mind that they weren’t occupied because there were no bathrooms, kitchens, or even drywall. Their interpretation meant more dollars coming sooner to the taxing bodies they worked for.

This is another example of how taxation can be evil. Builders were now on the hook for thousands of dollars in property taxes on a single home where no one lived; paying for community services that no one used.

Paul Lovell, an HBAI Past President, home builder, and township assessor stated the situation most accurately: Pro-Rata Valuation is the percentage of time that a home is complete within a calendar year. Some (not all) assessors want it to mean the percentage of completion during the course of construction.

To remedy this wrongful form of taxation, HBAI initiated legislation requiring that improved property be eligible for full improved assessed valuation from the date that the improvement was inhabitable and fit for occupancy or for intended customary use. This change eliminated the “either or” criteria and made it identical to language found in the Act referring to decreases in value to property.

HB521 was introduced by State Rep. Joel Brunsvold, a Democrat from the Quad Cities, in the spring session of 1999. The bill passed unanimously and was picked up in the Senate by State Senator Wendell Jones, a Republican representing northwest Cook County. Senator Jones had similar success, receiving a unanimous Yes vote in the Senate. HB521 law was signed by Governor George Ryan and has been in effect since January 1, 2000, (Chapter 35 ILCS 200/9-160, 165, and 180). If you would like to know more about pro-rata valuations, feel free to contact me at billward@hbai.org, or, at (800) 255-6047.